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By XE Market Analysis February 26, 2014 3:09 am
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    XE Market Analysis: Europe - Feb 26, 2014

    Another low in the CNY was the main development as the main currencies traded in narrow ranges during the Asian session ahead of the European open. EUR-USD flat-lined at familiar levels in the mid-1.37s, USD-JPY was steady in the mid-to-low 102s, and Cable made time in the upper 1.66s, all remaining comfortably within the previous days ranges. In Japan, BoJ Governor Kuroda said that monetary policy will remain expansive even if the Fed continues to to taper. In Australia, the construction work for Q4 came in sub-forecasts at -1.0% q/q (median was for +0.2%). AUD-USD dove below Tuesday's low to a nadir of 0.8969 before recovering to the low 0.90s. Stop related selling was reported through 0.9000. USD-CNY recorded an official mid-point of 6.1192, down on yesterday's closing 1.1266 level, the weakest since July last year. This reflects a policymaker change in stance due to economic slowing and concerns about liquidity excess.

    [EUR, USD]
    EUR-USD has continued to oscillate in the 1.37s. We continue to anticipate further EUR-USD weakness. Pressure on the ECB to take further monetary action into its March policy meeting has been growing Eurozone PMI data that showed France moving further into contraction territory and the overall Eurozone composite reading falling slightly, coming amid a backdrop of disinflation. Technically, the EUR-USD picture looks bearish. A two-week run higher to last week's peak of 1.3773 stalled shy of 1.3800, and this follows the multiple rejections from 1.38+ levels over the October to December period, which had been associated with a notable drop in upside momentum following a six-month rally phase.

    [USD, JPY]
    USD-JPY has been steady around the low 102s, unmoved by BoJ Governor Kuroda's remarks that monetary policy will remain expansive even if the Fed continues to taper. There is little overall directional impetus in USD-JPY. BoJ policy would favour continued weakness, but the threat of China slowdown and its negative consequences on global stock markets is an offsetting yen-supportive force. Resistance is marked at last Friday's three-week peak at 102.83, ahead of 103.00-103.10, which encompasses the 50-day moving average. Support is at 102.00 and 101.66, ahead of major support at 100.00-100.71, the latter of which is the 200-day moving average.

    [GBP, USD]
    Sterling has established a firmer underpinning from a subtle change in some BoE MPC members' language, with both Weale and Broadbent having remarked in recent days that wages should start rising this year, though Governor Carney stuck to the boilerplate "we will not take risks with the recovery." We don't advise taking a bullish view, however, as we anticipate incoming data will show recovery momentum to be decelerating, and signs of the recent weather impact are likely to start appears in data too. Cable support is at 1.6625-1.6600. Resistance at 1.6725-30 and 1.6740. Cable met good selling in the 1.6700-25 zone in the latter part of last week, and the same again would likely be seen again.

    [USD, CHF]
    EUR-CHF has remained at sub-1.220 levels. The recent break of support at 1.2206 (the Feb-13 low) and 1.2200 brings the Dec-17 cycle low of 1.2167 back into scope. SNB-speak this month reaffirmed the strong commitment to maintaining the 1.20 limit peg, and would only consider removing it if inflation was much higher (CPI has been steady at just 0.1% y/y over the last three months, and the outlook remains benign). We don't advise speculative accounts to hold long CHF exposures below 1.2100 given the threat of SNB intervention ahead of 1.2000.

    [USD, CAD]
    USD-CAD capped out just shy of 1.1200 on Friday after a perkier than anticipated outcome in Canadian CPI data, which undermined BoC easing expectations. On balance, the risks remain to the upside as the growing signs of China slowing may weigh on the commodity currency bloc. The Jan-31 major-trend peak at 1.1224 is a key level now, while good selling interest is likely into 1.1200 too. Support comes in at 1.1100, ahead of 1.1035.

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